Meet the Roosevelters

By Richard Kirsch | 06.12.12

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Congress shouldn’t make working- and middle-class families pay for the repeal of a sales tax on one of America’s most profitable industries.

Last week the House voted to increase health care costs on middle-class families in order to protect one of the most profitable industries in the country. And almost nobody noticed. More than three dozen Democrats, oiled by campaign contributions, joined all 233 voting Republicans in voting for a repeal of a 2.3 percent sales tax on the medical device industry included in the Affordable Care Act. They voted to pay for the lost revenues by making families who are fortunate enough to get back on their feet pay more for health coverage.

The vote last week symbolizes most everything that is wrong about our politics, and in particular the politics around the Affordable Care Act, with one very welcome exception. The White House – not known for standing up tall – promised a veto of the legislation.

One way that the Affordable Care Act will be paid for is by new taxes and reduced Medicare revenues from major segments of the health care industry. In return, health care providers will reap greater revenues from tens of millions newly insured people and improved health coverage for tens of millions more. Medical device manufacturers got off easy with the 2.3 percent sales tax considering that, according to Forbes, the industry is one of most profitable in the country (number one on return on assets, number four on return on sales, and number nine on return on equity).

That did not stop the medical device industry from fighting the tax with the usual cry wolf tactics, saying it will cost jobs and hurt small business. An editorial from, of all places, Bloomberg News takes the industry’s arguments apart, one by one. The most glaring example is the charge by the industry’s trade association, AdvaMed, that the tax would cost 43,000 U.S. jobs as manufacturers moved offshore. But since the tax applies to all medical devices sold in the U.S., there is absolutely no advantage in moving jobs offshore. Doing so won’t reduce the tax by a nickel (or a yuan).

The members of Congress who are backing repeal of the tax, led by Minnesota Republican Erik Paulson, come from states where the medical device industry is big — and so are its campaign contributions. Paulson raked in the third most contributions from the medical supply industry of any candidate for Congress ($64,100) this election cycle. He was topped by two senators from other states with big medical device industries: Utah’s Orin Hatch ($88,399) and Massachusetts’s Scott Brown ($82,150). But it’s not just Republicans. Democratic Minnesota Senator Amy Klobuchar ($63,650) ranks just after Paulson and she opposes the tax too. All together, the industry has contributed $2.9 million to congressional candidates this year. On top of that, the industry reported $31.7 million in lobbying in 2011.

So far, this is a pretty typical story of money and politics. What makes it more reprehensible – and increasingly typical – is that in the bill the House passed last week, the industry tax break would be directly paid for by struggling working- and middle-class families.

Starting in 2014, the Affordable Care Act will provide subsidies to these families to buy health coverage if they don’t get coverage at work. The financial help, in the form of a tax credit given up front, will limit the amount of a family’s income it must pay for health insurance premiums. Under the House bill, if a family’s economic status improved, they would have to pay back the full portion of the subsidy that reflects their increased income.

Think of what this means for a family that has been struggling financially, maybe out of work or working at low-wage, part-time jobs. They’ve been barely getting by and using up their savings, but finally they get back to work or find a job that pays a decent wage. And promptly the government demands a payback of some of the money given to the family to pay for health insurance.

The payback requirement will mean that some 350,000 people – mostly women, whose income fluctuates the most – will decide against applying for subsidies and remain uninsured because of the fear of having to pay the health insurance premium credits back when their income changes.

Because the new system of subsidies does not start until 2014, it is tough to make them seem real and politically salient now. If Congress voted to penalize people when millions of newly insured families were getting subsidies, the harsh impact on people’s lives would be easy to see and understand. But since nobody is affected right now, it is much harder to make a powerful argument.

That is true for all of the core elements of the ACA and the provisions that will extend coverage to some 32 million uninsured people. If the law survives the Supreme Court and the presidential election and is implemented in 2014, Americans will find out that they will no longer have to worry that losing theirs jobs means losing their health care or fret about being turned down for coverage due to a pre-existing condition. Then ObamaCare will be both understandable and popular.

The Republican move to make families pay back the subsidies is not the first of its kind. When the ACA was enacted, there was no provision to pay any of the money back. But since then, Democrats have twice agreed to some payback provisions as a way to raise money for other purposes. Of course, that’s not enough for Republicans. They want to force families to pay every dime back in the medical device bill. This shows the folly of Democrats ever agreeing to anti-consumer provisions to placate Republicans; it simply emboldens them to ask for more.

President Obama seems to have learned that lesson. On June 6th, the Office of Management and Budget released a statement harshly criticizing the House bill, saying that it would “raise taxes on middle-income and low-income families, in many cases totaling thousands of dollars, not withstanding that they followed the rules.” That’s the kind of language that fits in with the president’s campaign themes and the message he needs to continue to trumpet throughout the country if both he and the ACA are to survive past November.

Richard Kirsch is a Senior Fellow at the Roosevelt Institute, a Senior Adviser to USAction, and the author ofFighting for Our Health. He was National Campaign Manager of Health Care for America Now during the legislative battle to pass reform.